Economic Survey 2015-16: Sectoral Overview - I

Shravan Nune

The Survey reviews the developments in the Indian economy over the previous 12 months, summarises the performance on major development programmes and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.

GDP Growth

• India registered robust growth of 7.2 per cent in 2014- 15 and 7.6 per cent in 2015-16, thus becoming the fastest growing major economy in the world.

• India’s growth is impressive because global growth averaged 3.1 per cent in 2015, declining from 3.4 per cent registered in 2014.

India’s increasing importance to global growth

• India’s share in world GDP has increased from an average of 4.8 per cent during 2001-07 to 6.1 per cent during 2008-13 and further to an average of 7.0 per cent during 2014 to 2015 in current PPP terms.

• India’s contribution to global growth in PPP terms increased from an average of 8.3 per cent during the period 2001 to 2007 to 14.4 per cent in 2014.

• India vs USA: During the 1990s, the USA’s contribution to the global GDP growth in PPP terms was, on an average, around 16 percentage points higher than India’s.

• The picture changed dramatically in 2013 and 2014 when India’s contribution was higher than that of the USA by 2.2 and 2.7 percentage points respectively.

Aggregate Demand

Three visible changes are taking place in aggregate demand.

1) With improving growth in private consumption, its contribution to GDP growth is getting aligned to its GDP share.

2) Aided by the growth in capital goods, the growth of fixed capital formation has picked up.

3) The substantial erosion of global demand for Indian output, manifest in loss of Indian Exports, acts as a drag on domestic growth.

Against this backdrop, India’s ambitious growth targets in the near future will be met on the strength of domestic consumption which increased from 56.2 per cent in 2011-12 to 59.8 per cent in 2015-16.

Growth in Gross Value Added

• The Gross Value Added (GVA), which broadly reflects the supply or production side of the economy, registered an increase in the growth rate from 5.4 per cent in 2012-13 to 7.1 per cent in 2014-15. For 2015-16 it is pegged at 7.3 per cent.

• Growth rate of GDP at market prices for the years 2012-13, 2013-14 and 2014-15 is currently estimated to be 5.6 per cent, 6.6 per cent and 7.2 per cent respectively.

• The difference between GDP and GVA is product taxes net of product subsidies and indicates net indirect taxes (NIT).

• The public sector constitutes about a fifth of the Indian economy in terms of GVA at basic prices, while the private corporate sector a little above one-third. The household sector contributes the rest.

• One conspicuous change over the four-year period from 2011-12 to 2014-15 was the decline in the shares of the public and household sectors in total GVA, which was fully taken over by the private corporate sector.

Per capita Income

Per capita income, defined as Net national income (NNI) divided by the estimated population, recorded a healthy growth rate between 2013 and 2015 and the trend was reinforced in 2015-16.

The Saving-Investment Balance

• The gross domestic savings rate in the economy declined by 1.6 percentage points of the GDP from 2011-12 to 2014-15.

• In tandem with the trends in gross savings, fixed investment as proportion of GDP declined by 3.5 percentage points from 2011-12 to 2014-15.

Public Finance

• The Budget 2015-16 sought to contain the fiscal deficit at 5.56 lakh crore rupees (3.9 per cent of GDP) as against 5.13 lakh crore rupees (4.1 per cent of GDP) in 2014-15.

• In spite of the challenges posed by the lower-than-projected nominal GDP growth, the fiscal deficit target of 3.9 per cent of GDP seems achievable.

Prices and Monetary Management

Prices

• Consumer Price Index: Headline inflation, based on the CPI (combined for rural and urban areas) series, dipped to 4.9 per cent during April-January 2015-16 as against 5.9 per cent in 2014-15.

• Food inflation in terms of the Consumer Food Price Index (CFPI) declined to 4.8 per cent during April-January 2015-16 as compared to 6.4 per cent in 2014-15.

• CPI-based core (non-food, non-fuel) inflation also remained range-bound, inching marginally upwards from 4.2 per cent in March 2015 to 4.7 per cent in January 2016.

• The substantial decline in price of the Indian basket of crude oil, through its direct and second round effects, partly contributed to the decline in general inflation for the second successive year.

• The astute policies and management of inflation by the government through buffer stocking, timely release of cereals and import of pulses and moderate increase in MSPs of agricultural commodities helped in keeping prices of essential commodities under check during 2015-16.

Monetary Developments

• With the easing of inflation and moderation in inflationary expectations, the RBI reduced the repo rate by 100 basis points between January and September 2015.

• The RBI kept the repo rate unchanged at 6.75 percent in its most recent and the sixth bi-monthly monetary policy statement on 2 February 2016.

New initiatives in the Banking sector

The performance of Scheduled Commercial Banks (SCB) during the current financial year remained subdued.

The sluggish growth of bank credit can be attributed to following factors

• Incomplete transmission of the monetary policy as banks have not passed on the entire benefit to borrowers

• Unwillingness of the banks to lend credit on account of rising Nonperforming Assets/NPAs

• Worsening of corporate balance sheets, forcing them to put their investment decisions on hold

• Interest rates in the bond market being more attractive to borrowers

However, on the positive note, there was considerable increase in the opening of basic savings bank deposit accounts during 2015-16 under the Pradhan Mantri Jan Dhan Yojana.

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